Staffing agencies must plan and recession-proof their business more than ever due to economic uncertainties. Recession or not, this article will explore staffing agencies’ proactive strategies to protect and grow their firm. Client diversity for risk mitigation and growth, team development and cross-training, business growth and cash flow, cash choices in an unstable environment, and receivables finance will be covered.
Watch this prerecorded webinar with Sheri Tischer and Dan Eichstaedt, where they dive deeper into Recession Proofing your Staffing Agency in 2023:
Diversification
As a staffing owner, it’s possible to specialize while still diversifying your business. A lack of client diversification can cause a potential threat to your staffing agency. While this might be a more significant area of concern for a start-up or small agency, all agencies should be managing their diversification regardless of size or time in business. It’s essential to consider both your total number of billing clients and the concentration of each client.
Forbes suggests that in a mature business, no single client should account for more than 10% of total sales; other sources suggest 20%. The bottom line, you don’t want all your eggs in one basket.
Why Diversify?
Diversification is crucial as it protects your business from the loss of a large client or an industry downturn. Just as important, it protects from a client that is slow-paying or non-paying.
5 Tips on How to Diversify:
- Analyze your existing portfolio. Utilize your staffing software to run revenue-by-client reports, aging reports, and gross profit reports to analyze your current portfolio.
- Create a diversification plan. Collaborate with your team to assess the staffing needs of growing industries and recession-proof industries such as healthcare, education, and food processing. What skills are in demand or transferable to various industries and jobs that you might not have tapped into? Align your team and put together a marketing campaign to coincide with your diversification plan.
- Consider adding new solutions, such as creating a Direct Hire program with a dedicated team. Consider adding an onsite program, or, if you are large enough and positioned well, implement an MSP solution.
- Set aside time each week for new business development. It’s nearly impossible to achieve 100% client retention. For one reason or another, every company loses accounts. Not only is it important to schedule time growing your existing accounts, you also need time dedicated to new business development.
- Consult with a staffing industry expert for diversification strategies to promote growth. Reach out to peers and trusted resources as a platform to bounce ideas off. Listen to different methods they are using to encourage growth.
Develop and Cross-Train your Team
A 2022 workplace survey conducted by the American Staffing Association ranked lack of career growth and development as the top reason (other than burnout) why people were leaving their jobs.
When creating your training and development program, consider these four categories:
- Product Knowledge – which is equivalent to job-specific skills training.
- Professional Development – which would include training on topics such as negotiations, leadership, emotional intelligence, time management, and more.
- Cross Training – to support other positions and departments within the organization.
- Upskilling/training your contract employees.
A five-year study by Dr. Laurie Bassi, a Human Capital Specialist, proved the return on investment for cross-training, who found a 21% increase in productivity, profit margins were 24% higher, and a 300% reduction in employee turnover after focusing on cross-training and developing your team.
How do you put together a training and development program?
There are a number of training companies in the marketplace that specialize in training for the staffing industry, such as Staffing eTrainer or Butler Street.
Growing the Business and Improving Cash Flow
Contract Payment Terms
To improve your cash flow, asking yourself the right questions about your contract payment terms is essential. Are you doing a standard payment term with everyone? What if they pay late? Are those payment terms working for you? When you ask yourself questions like these, you’ll be able to narrow down which contract payment terms benefit you versus hurting your cash flow.
Work your Aging
There are four key things to focus on when you work your aging. First, designate someone to be responsible. No one wants to do this, so designating one person to be in charge will eliminate the chances of it being passed over as a duty. The next step is to make sure it is done consistently. If you don’t consistently work your aging, it’s easy for days outstanding to deteriorate and affect your cash flow. Finally, develop a relationship with your client’s AP department!
Adjust your Pricing Model
A standard rate increase program for your clients is one option. Another is to use labor market data analytics to support your need for higher bill rates with certain positions. Using a product like Gartner Talent Neuron or Lightcast, formerly Emsi, gives data around “difficulty to fill” and will support your ask for a higher bill rate.
Focus on Filling the “Right” Orders
An order isn’t an order until it’s filled, billed, and collected! With that in mind, not only is it important to accept good, fillable orders but you need to make sure that your client can pay. Having a process in place to check credit and establish credit limits is just as important as making sure the job is fillable.
Expand your Business
Is now the time to expand to new geographies, add to your list of skill sets, or look at adding a new solution such as a direct hire program, MSP solution, or onsite program?
Pursue Financing
If you plan to expand your business, it’s essential to ensure you have the cash flow to support that growth.
Cash flow is having the right amount of cash in the right places at the right time, every time. – Adam Stewart, Debt Collection Expert
According to the research done by U.S. Bank and cited in the SCORE and Counselors to America’s Small Business, cash flow is the reason 82% of small businesses fail.
Know your Options for Cash in an Uncertain Economy
There are a variety of cash flow solutions for staffing agencies.
Self-Funding
Self-funding is self-explanatory. This is the least costly of all cash flow solutions, but it is high-stress. No one likes to spend their own money.
Bank Line of Credit or Loan
Another option is a bank line of credit or a loan. There are some benefits, such as funds on-demand, a safety blanket approach, and fees only occur if they are drawn upon. However, setup time, time in business, ratios, & oversight are all downsides that come hand-in-hand with a bank line of credit or loan. Additionally, circumstances can change a lot, such as a staffing owner who has a bank line of credit but might feel pinched because that line of credit might not be adequate to take on a new client.
Merchant Cash Advance
Merchant cash advance loans are quick and easy to obtain, but they implement very high fees while being an unsustainable option.
Payroll Funding
Payroll funding, also known as receivables financing, is fast with flexible terms. With us, you can choose your clients in addition to a month-to-month contract. The only con to payroll funding is our volume minimum.
Understanding the Benefits of Receivables Financing
The biggest challenge staffing agencies face meeting weekly payroll when it takes 15 days, 30 days, or even 60 days for customer payments. Payroll funding for staffing agencies gives companies access to the working capital they need to meet payroll obligations and grow. Payroll funding is also known as accounts receivable financing; it provides instant cash flow so your agency can grow without limits. The process works by selling your open receivables to a payroll funding company in exchange for an immediate cash advance.
Diversifying your staffing agency while developing your team with knowledge and skills beyond their position will strengthen the position of your business. Setting aside time each week to concentrate on expanding your business will also mitigate the risk and damage of losing a specific client or account. Understanding and utilizing the appropriate cash flow source will be the critical foundation of successfully incorporating these suggestions into your agency. Amidst all the economic uncertainty today, knowing and implementing these different tips will fortify your staffing agency regardless of what’s coming.
Learn more about payroll funding for staffing or contact Sheri Tischer, TCI Business Capital’s Staffing Expert.
VP of Business Development
(952) 656-3492
